Economic Fluctuations,Client Pressure And Audit Collusion

High-quality auditing is an important mechanism to ensure the authenticity of corporate information disclosure,and it is of great significance to protect the interest of investors.Once a large number of audit collusion occur,the capital market will flood with a lot of false information.The economic downturn caused by the series of financial scandals such as Enron WorldCom in 2001 and the global financial crisis triggered by the subprime mortgage crisis in 2008 all indicate that the decline in the quality of audits impacts the overall economic performance.As early as 1989,the theory of financial accelerator proposed by Bernanke et al.pointed out that the information asymmetry and agency costs at the micro level are the main causes of "small shocks and large fluctuations".Bernanke et al.believe that the cost of auditing is higher during the economic downturn,and external investors such as banks will increase the cost of foreign financing for the increasing cost of knowing the company's real financial situation in the downturn of the economy,resulting in the corporate investment spending deteriorated and economic decline accelerated.The information shock brought by audit collusion amplifies the impact on the economy through the role of the credit market.Therefore,it is of great significance to study the audit collusion during the economic fluctuation period.From the existing literature,there are few studies on the relationship between economic fluctuations,audit collusion,and audit quality,and their conclusions are controversial.The foreign literature is mainly studied under the framework of "crash-then-law".They do not directly study the impact of economic fluctuations on audit quality and audit collusion and its specific mechanism of action.From domestic research,few researchers studied the relationship between the economic cycle and earnings management,but they only compared the level of earnings management in different economic cycle stages,they didn't make deep analysis of the specific mechanism of the impact of economic fluctuations on the company's earnings management,and there is also no discussion on the conduction path that the company transfers part of its own risk to the auditor and then achieves audit collusion.Based on China's national conditions,this paper discusses the characteristics of the period in which a large number of audit conspiracies occurred and the specific mechanism of the impact of economic fluctuations on audit collusion.From the perspective of customer pressure,this paper studies the conspiracy relationship between auditors and audit clients in different economic fluctuation phases.After empirical research,we found that:(1)Characteristics of the period in which a large number of audit conspiracies occurred:In comparison with the economic downturn,the probability that clients and auditors reached a conspiracy during the economic upturn was even greater.Non-state-owned corporate clients and auditors have a higher probability of conspiring during the upcoming period,while state-owned corporate clients and auditors have higher probability of conspiring during the economic downturn.(2)Competency of audit conspiracy reached:Non-state-owned enterprise auditors and small and medium-sized auditors pay more attention to the current interests of audit conspiracy.In the economic upswing,the conspiracy is achieved mainly by charging higher audit fees.And state-owned enterprise auditors and large Auditors pay more attention to the long-term interests of audit conspiracy:In the economic downturn,the conspiracy is achieved mainly through the reduction of audit fees and the increase of future economic up-cycle audit fees.(3)The investor protection environment does not have a significant inhibitory effect on the relationship between audit collusion and economic fluctuations,but the trial investor protection system can significantly curb collusion among small and medium-sized auditors seeking short-term benefits in the boom economy.This article is devoted to investigating the characteristics of the period in which a large number of audit collusion occurred and its specific mechanism of action,further deepening the understanding of macroeconomic policies affecting the micro-enterprises,and at the same time helping investors,regulators,and policy makers identify "noise" in economic data,providing some guidance for audit collusion prevention.